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Guide for a Foreign Citizen Acquiring or Canceling Residency Status in Israel

For the benefit of web browsers, we prepared this detailed and easy guide explaining the duties and rights of a person living in Israel irrespective if he is an Israeli or foreign citizen.
A
n Israeli citizen who is also  resident is obligated to pay Bituach Leumi premiums and report and pay taxes, even when his business dealings were carried out or accrued outside of Israel. (Tax payments for income which was produced abroad will give him tax credits due to a double tax convention as will be explained below.) 
A foreign citizen who legally resides in Israel and the “center of his life” is in Israel, even though he is not an Israeli citizen, is also included in the definition of an “Israeli resident” regarding membership in Bituach Leumi, and tax payments for transactions made abroad. (Tax payments for income which was produced abroad will be credited due to a double tax convention as will be explained below.) (Regarding the conditions necessary to be considered an Israeli resident, see below.)
An Israeli citizen who canceled his residency status or it was rescinded, remains an Israeli citizen with "non-resident" status. Only after his residency status is cancelled, is he exempt from the obligation of paying Bituach Leumi premiums and reporting and paying taxes on transactions for transactions made abroad.
Canceling or acquiring Israeli residency status has different meanings in different government offices and authorities, and each ministry establishes its own criteria and regulations for canceling or non-canceling the residency status.

 
Terms of acquiring residency status regarding Bituach Leumi:

 Although there is no clear definition in the National Insurance Act of who is an Israeli resident for the purposes of Bituach Leumi, Israeli residency status has been determined by court rulings as follows:

An Israeli citizen - One who was born in Israel will automatically at birth be considered a resident of Israel regarding Bituach Leumi.
If he was born overseas, his parents have to visit the Bituach Leumi office as soon as they arrive in Israel and register him.
If he was born abroad to a parent who is an Israeli citizen (an immigrant citizen) and came to settle in Israel at the age of 17 (or was an immigrant minor who returned between the ages of 14 and 17), or he emigrated abroad as a child when he was younger than 14 (returning minor), and he came to Israel after spending at least four consecutive years abroad, he has to get an immigrant citizen/returning minor document from the Immigration and Absorption Ministry to become eligible for Bituach Leumi, and then doesn’t have to undergo a waiting period. He can also finish the process of registering for Bituach Leumi in the Immigration and Absorption Ministry.
An Israeli citizen who went abroad and canceled his residency status or it was rescinded, and he wants to re-establish his residency, has to prove that the center of his life is now in Israel and has to finish a period of waiting as a condition for receiving residency. See the Guide to Bituach Leumi for Returning Residents.

A foreign national who wants to establish his residency in Israel regarding Bituach Leumi, see the Guide to Bituach Leumi for a Foreign Resident


Terms of canceling residency status regarding Bituach Leumi:
 
An Israeli citizen -  is considered a non-resident regarding Bituach Leumi under the following conditions:
1.  The center of his life is abroad. For in stance, he lives, studies or works there, and his family or community life is there.
2.  He lived less than 183 days a year in Israel during the two years before he requested the cancelation of his residency.
In many cases, if it is established that the main center of the applicant's life is abroad, his residency can be cancelled in less than two years.
To cancel your residency in Bituach Leumi, you must fill out a Questionnaire to Establish Residency for One Living Abroad (Bituach Leumi form 627).
In addition, you must attach a personal letter showing that the main center of your life is abroad, i.e. because of studies, residence, family.
Going abroad temporarily for studies or government work on behalf of a government company or municipal authority, is not considered as making “the center of one’s life” abroad concerning canceling his status as an Israeli resident.
Israelis living abroad who want to check their residency status regarding Bituach Leumi, can call: 972-8-9369669 (The service is available from Sunday - Thursday, from 8:00 to 15:00). They can also check it out at the Bituach Leumi website.

Remember: If you are an Israeli citizen who is going abroad for a short period and you are planning to cancel your residency in Israel now, and renew your health coverage from Bituach Leumi when you return, you will be subject to a waiting period to join or will have to redeem the waiting period by paying a fee.

A foreign national - whose status in Bituach Leumi is like that of an Israeli resident (see the Guide to Bituach Leumi for Foreign Residents), is considered a non-resident as soon as he leaves Israel on condition that the permanent “center of his life” moved abroad.
To cancel your resident status in Bituach Leumi, you have to go to the nearest branch of Bituach Leumi, fill out a form (Bituach Leumi form 627), and check with Bituach Leumi officials that your status was canceled. If you don’t cancel your residency status, you may find yourself being charged fees and interest rates by Bituach Leumi. 
If you forgot to arrange the cancellation of your residency before you left Israel, you must fill out a Questionnaire to Establish Residency for One Living Abroad. (Bituach Leumi form 627). It is recommended that you include a personal letter proving that the center of your life is abroad, i.e. because of studies, residence, family.
Those living abroad can contact the Bituach Leumi through its call center. Phone: 972-8-9369669 (The service is available on Sunday - Thursday from 8:00 to 15:00).

 
Conditions to have resident status regarding taxes (the Tax Authority)
 
A tax year means the period of twelve consecutive months that commences on January 1.
A foreign resident is exempt from paying and reporting taxes from the day he left Israel (retroactively) for transactions made abroad, "only under the following two conditions":
 1.  The center of his life is determined to be in Israel, with the following to be taken account: family, economic and social ties, including, among others, one’s permanent home where he and his family resides, his regular or permanent place of  work / employment, where he maintains active and significant economic interests, and where he is active in organizations, unions or institutions.
2.  He resided 183 days or more (continuously or intermittently) in Israel in the tax year, or spent more than 30 days in the fiscal year, provided that the total overall days he lived in Israel in the tax year and the two years before the tax year, is more than 425 days.
 
 
Conditions to have foreign residency status regarding taxes (the Tax Authority)
 
Although a foreign resident for tax purposes is one who does not have Israeli residency status and does not meet the conditions stated above (in the conditions to be an Israeli resident for tax purposes), nevertheless one can acquire foreign residency status in another way (which does not contradict the two conditions above) as follows:
 
A foreign resident is exempt from paying and reporting taxes from the day he left Israel (retroactively) for transactions "made abroad, "only under the following two conditions:
1.  He lived abroad for at least 183 days of each year for the first two years since he left Israel (even if it wasn’t yet the center of his life).
2.  He established the center of his life abroad in the third and fourth year after leaving Israel.
To determine the center of one's life abroad, the following will be taken account: family, economic and social ties, including, among others, one’s permanent home where he and his family resides, his regular or permanent place of  work / employment, where he maintains active and significant economic interests, and where he is active in organizations, unions or institutions.

Please note: Determining one’s non-resident status is also important for the tax benefits and rights which a returning resident is entitled to. Please refer to the Guide to Taxes for a Returning Resident and Immigrant.


Tax for a non-resident’s income produced or accrued in Israel
Despite a non-resident and an Israeli citizen with the status of a non-resident being exempt from income and transactions originating from abroad because they are non-residents, they nevertheless must pay taxes on all income produced or accrued in Israel, without exception.
Therefore, if a foreign resident has a property that gives him rental income, he has the same status as an Israeli and must pay the taxes prescribed by law. 
He also must pay VAT for each transaction carried out in Israel or when he imports goods to Israel.
A non-resident has to open a file in the income tax and VAT offices. It’s a good idea to get the help of an accountant and tax consultant for managing and choosing a tax payment track.
 

Double tax convention
If a non-resident who is deriving income in Israel is a resident of a country that has a double taxation convention with Israel, the primary right to tax goes to the country where the revenue was accrued or produced, and his country of residence will award him tax credits.
And vice versa, if an Israeli citizen accrues income abroad and is a resident of a country that has a double taxation convention with Israel, the primary right of taxation goes to the country where the revenue was accrued or produced. He will be awarded tax credits in Israel where he is a citizen. 
To date, Israel has signed a tax convention with 53 countries.

Important! Tax exemption under a “Double Taxation Convention” does not exempt one from paying additional taxes in Israel. An Israeli resident who accrues or produces earnings overseas, must pay the remainder of the Israel tax if the tax amount he is required to pay in Israel is higher than the country where he accrued or produced his earnings.
Likewise, if the Israeli tax deduction is smaller than the tax deduction from abroad, he will be credited with that amount for next year's account.
Questions and Answers:
Does a foreign citizen have to pay tax on revenues generated or accrued in Israel
Answer:
He must pay tax, since the revenues were generated or accrued on Israeli ground
Does a foreign citizen who is a resident in Israel have to report on his income produced or accrued outside Israel
Answer:
Yes, he must report and pay tax on income generated or accrued abroad. If there is a double treaty convention, he will pay tax to the country where the income was generated and get credits towards his Israeli tax
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